VOICES: Knut Rostad, on Showing Support for a Fiduciary Standard

By Zack Anchors

Knut Rostad

Knut Rostad is the regulatory and compliance officer at Rembert Pendleton Jackson, a wealth management firm in Falls Church, Virginia. He is a founder of the Committee for the Fiduciary Standard and is an associate at The Center for Business Ethics at Bentley College. He spoke with WSJ Financial Adviser about difficulties brokers face in expressing support for a fiduciary standard.

There is strong support among brokers for a fiduciary standard, but I don’t think that message has been getting out. A recent survey [conducted by the SEI Advisor Network and The Committee for the Fiduciary Standard] showed that 53% of brokers and 86% of advisers support a fiduciary standard.

I think this survey reveals a huge split between the brokerage folks on the ground, who are dealing with customers every day, and their home offices, which are by definition a bit removed from the customer experience. The backdrop to this includes decades of staunch opposition to the fiduciary standard from those representing the brokerage community. That only started changing about nine months ago in terms of their positions and statements. And this survey reveals that, notwithstanding that longstanding opposition, a majority of brokers support the standard and a far larger number have a correct understanding of key provisions. That’s the picture that’s overlooked when this issue is publicly discussed and when it’s presented in the industry media.

I’m not sure there’s much in the way of examples of brokers expressing their support for the standard in the media. I think what we get is some form of opposition — or reluctance, or resistance, or expressions of difficulties that the standard presents brokers. There are many brokers who essentially conduct themselves to a fiduciary ethic, though are not able to talk about it. In many instances they’re not allowed to speak about it, much less put it in writing. But in terms of how they conduct their business, they are operating at the standard. I don’t get the sense that that part of the story has gotten out.

There are very good practical reasons, from a broker’s point of view, for not voicing support, and that gets to the heart of their relationship with their broker/dealer. They certainly have an understanding of what the broker/dealer’s official position is, and how much latitude the broker dealer allows them. So it’s not so much the brokers in the field who are resisting but the home offices that in many cases are resisting, in one fashion or another, making the changes to move in this direction. That schism between the home offices and the brokers is a key factor.

I think it would be very helpful if there was a greater awareness that many of the brokers who are dealing with clients every day want to make this move. That would help move this process along.

Just in the last two weeks, we’ve seen the CEO of Goldman Sachs going out of his way to say this is what we need to do. So that’s another sign – a very positive sign – that the top leadership on Wall Street recognizes that this is what the industry wants to do.

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